Vox Popoli

From the last part of my appearance yesterday on Dialogue.

US TARIFFS A PRELUDE TO A TRADE WAR
President Trump seeks to renegotiate NAFTA

YANG: President Trump accused his predecessors of making stupid mistakes, as a result Americans have suffered $800 billion of trade deficits almost annually. So what do you think of his negotiation ploy to use the issue of a trade imbalance for renegotiating NAFTA with Canada and Mexico? The Minister of International Trade in Canada and politicians in Mexico both made it very clear that they would not allow the U.S. government to hurt their respective economies. What do you think of this war of attrition?

VOX: I think the Trump administration’s long term goal is to get rid of NAFTA altogether. NAFTA is extremely unpopular in the United States, the negative effects of it have actually been worse than its enemies predicted, and none of the benefits that were promised to Americans have been delivered to them. And so, I think that the threats and the posturing of the Mexican and Canadian governments is almost completely irrelevant. Trump has made it very clear that he understands. His focus is on the American working class and finding jobs, finding manufacturing jobs.

That’s why the services perspective that you mentioned with regards to China is really just a tactical measure. It wouldn’t solve… it may solve the issue from the economists’ point of view, but it doesn’t solve it from President Trump’s point of view or from the point of view of the American people. And so I agree with the gentleman who said that’s not a long-term solution. It’s not, because it doesn’t meet the goals that have been expressed by the President.

YANG: We’ll see what happens next. I thank you so much for being with us.

It appears to have been received rather well, so there is a reasonable chance that I will do this again. It’s rather fascinating to observe, as one reader noted, that the Chinese state-owned media is demonstrably more free and open to genuine discussion of the relevant issues than the US media that is owned by no one in particular and certainly isn’t owned by anyone who should be criticized or even identified.

As I mentioned yesterday, I was asked to pinch-hit for Steve Keen on a Chinese English-language business show this morning. They arranged for a trip up to the studio, which frankly struck me as more than a little overkill considering that they only asked me four questions. But it was a real learning experience, although unfortunately I was on a bit of an audio delay. Please keep in mind that I had no idea what the host was going to ask me, except that it would have something to do with China and President Trump’s recent comments about tariffs, because I wasn’t tuned in until about 10 seconds before the host addressed me.

The transcript follows. The sections in italics are the graphics that the producers popped up while we were talking.

YANG RUI: Let me cross over to Mr Vox Day, author of On the Question of Free Trade: An Economic Discourse, for his comments on the latest. What do you make of the impact on the European Union.

VOX DAY: Well, I think the threats from the European Union are essentially toothless. There is very, very little that the European Union can do when it comes to US trade policy. I think it’s a lot of political threat, but ultimately there is nothing they can do about it.

YANG: You mean there won’t be any reprisals from the European Union? Let’s look at such statistics. The exports as a percentage of each economy: Germany is 46 percent, South Korea 42 percent, Mexico 38 percent, and Canada 31 percent. China is just 20 percent, but we are still very much exposed compared to 12 percent (for the USA). So, all would suffer in a trade war if there would be a trade war. What do you think of the collective repercussions.

VOX: First of all, I think it’s important to understand that not everyone will suffer equally in a trade war, and some parties will benefit from it. For example, if you simply look at the United States alone and we take it to the most extreme, absurd example and suppose that the United States were to stop all imports and exports, that would immediately translate into a 3 percent annual boost to the US economy. If you look at how the GDP is calculated, it’s very simple. And so the fact that it might have a negative outcome on Europe, the fact that it would have a strong negative impact on South Korea, says nothing about what the impact on the United States is. And, of course, President Trump has made it very clear that with his America First policy, he is not as concerned about the economic state of the rest of the world.

US TARIFFS A PRELUDE TO A TRADE WAR
US has high domestic demand

YANG RUI: Vox, what do you think of the Chinese response? What would be the most likely response from China, which was accused by the US government of only paying lip service instead of turning to actions, to reciprocate in terms of deals that are not quite in favor of the US. According to President Donald Trump, the US suffers $800 billion of trade deficit, that’s quite a lot.

US TARIFFS A PRELUDE TO A TRADE WAR
How will China respond in a trade war?

VOX: I think China’s response is going to be very calm and measured. I don’t think there is any advantage to China in trying to engage in reprisals, simply because, you know, by definition, the reduction of imports into the US is going to boost their manufacturing and boost their GDP. And so the best thing for China to do is to simply play a long game, play a waiting game. It’s something they’re very good at. This main steel and aluminum tariff is not directed primarily at China and so there is no reason for China to overreact. Trump will do what he says he’s going to do; he’s pretty good about that.

YANG: But last year we enjoyed a trade surplus of $300 billion with the United States and John, the guest speaker here in the studio, says that China is likely to open up our capital market and to lay the groundwork for more American services to be provided here in the Chinese market. What do you think of the prospects?

US TARIFFS A PRELUDE TO A TRADE WAR
US “has an $800 billion yearly trade deficit”

VOX: I don’t think that is going to be effective because Trump is not that concerned about Wall Street. He’s not that concerned about what you call the services market. He’s much more concerned about the industrial base, he’s much more concerned about the working class who have lost so many jobs over the last few decades. I think the most important aspect of that development you’re talking about is that it indicates that China is not disposed to respond to Trump’s harsh rhetoric with harsh rhetoric or ill-considered actions of their own.

I’ll share some of my thoughts on the experience later. And somewhat to my surprise, I was informed that they liked my answers and would like to have me back again sometime.

This is a good sign of the God-Emperor’s America First economic agenda in action. And the Main Street of America at that.

White House chief economic advisor Gary Cohn has resigned from President Donald Trump’s administration.

The former Goldman Sachs president and free trade advocate Cohn, whose departure date will come in a few weeks, decided to quit after Trump announced he would impose stiff tariffs on steel and aluminum imports…. Cohn clashed with Trump’s protectionist advisors on the issue of tariffs. At a meeting with steel and aluminum executives last Thursday where Trump announced the move, Cohn argued against it, warning about price increases for steel and aluminum products, according to a person in the room.

Free trade is not good for the US economy or the American public. But it is good for the financial elite that lives as a useless parasite off both as it plays the “heads I win, tails you bail me out” casino. And for those who missed my debate with economist Bob Murphy, the best thing about tariffs is the fact that they are an alternative to income taxes, a benefit that Bob even conceded during the debate.

VOX: My fourth argument against free trade is practical. Bob wrote that “the most obvious way to realize that tariffs make a country poorer is to realize that tariffs are taxes on domestic citizens, not on foreign producers”. That’s correct but that would only be true if the alternative was no taxes. That is obviously not the case now, it will never be the case, and it should be readily apparent that a nation with a government funded by tariffs will be wealthier and freer than a government funded by income taxes. Tariffs are considerably less intrusive and less economically disruptive than the personal and corporate income taxes that have replaced them. Free trade is unlikely to make a country wealthier if it replaces its tariffs with income taxes. (So to answer Bob’s question of how do politicians make a country wealthier, they do so by substituting tariffs for income taxes.)

BOB: One last thing here. Let’s see. He admitted, and I think it was very telling, that Vox admitted that tariffs are taxes on US citizens. So I wasn’t sure if he was going to go with me on that. He does. So again, Vox is now admitting that yes, the US government imposing taxes on US citizens make us better off and in some sense wealthier and he is just saying in comparison to income taxes. Well, fair enough, I do concede that. By the same token, Obamacare can make America richer if the alternative is socialized medicine. But, clearly, if we were debating if Obamacare makes us better off or not, I shouldn’t have to be forced to use the default option or the baseline case of an even bigger government policy. So, by the same token here, when I say tariffs don’t make Americans wealthier I am not saying the only other alternative is to say the income tax. So I do agree if we want to have some shared issues in the debate here, I do agree that tariffs are better than an income tax, dollar for dollar, but I still don’t think it is correct to therefore conclude tariffs make us wealthier.

It’s fine to hypothesize about a world with no taxes, no debt, and no government spending, but back here in the real world, we have a choice between a) income taxes, b) government debt, and c) tariffs. And tariffs are by far the economically preferable option that does the least harm to the citizenry.

It’s not hard to know who doesn’t have a real case when you see free traders going full-retard over two tariffs.

Trump needs to be impeached immediately to head off the trade war he has declared. His appointees who support that trade war, namely Commerce Secretary Ross and Trade Representative Lighthizer, should be fired immediately.

I am not trying to punish him, I am trying to stop the trade war. He has turned himself into a colossal mistake made by American voters in 2016. I don’t care whether he goes to the Leavenworth Penitentiary or Mar-a-Lago. I voted for Gary Johnson.

Let me give you a list of pertinent facts that cannot be denied:

• U.S. GDP has never been as high as now
• The number of U.S. jobs has never been higher than now
• Trumps claims he wants to increase the number of jobs. For whom? There are no U.S. residents left to hire. The Fed chair said we are at full employment and maybe have more people employed than full employment (you need a certain amount of unemployed because people quit, get fired, go to college or grad school, take vacations between jobs, etc.)
• The Smoot-Hawley Tariff bill (Smoot and Hawley were Republicans) was a large campaign issue in the 1928 presidential race. Republican Hoover said he would sign it. He won and took office in March 1929. He did sign it.
• The stock market crashed repeatedly starting on Black Tuesday October 29, 1929. “…by 1932 stocks were worth only about 20 percent of their value in the summer of 1929.”
(http://www.history.com/topics/1929-stock-market-crash) A similar thing happened to real estate, although there were few statistics on real estate back then. They used a study of real estate prices in the New York Times during the Depression to retroactively create the stats.
• Before the 1929 crash, the stock market was booming with shoe-shine-boy/taxi-driver speculative mania fueled by high-loan-to-value-ratio margin loans. There are lower loan-to-value-ratio margin loans now. But they contributed to the recent drop in stocks forcing some to sell to meet margin calls.
• In 1932, when FDR was elected, the U.S. national debt-to-GDP ratio was 17{a298dadb698b5d9f7b1e1aa14f0e41ed4811cd67f55ba9a1b19c355a24d2c8ed}. Today it is 105{a298dadb698b5d9f7b1e1aa14f0e41ed4811cd67f55ba9a1b19c355a24d2c8ed} meaning the U.S, government is in no position to provide the sort of government financial help it did during the New Deal.
• In 1929, international trade was 7{a298dadb698b5d9f7b1e1aa14f0e41ed4811cd67f55ba9a1b19c355a24d2c8ed} of world GDP. Today, it is 25{a298dadb698b5d9f7b1e1aa14f0e41ed4811cd67f55ba9a1b19c355a24d2c8ed}. Furthermore, about 40{a298dadb698b5d9f7b1e1aa14f0e41ed4811cd67f55ba9a1b19c355a24d2c8ed} to 60{a298dadb698b5d9f7b1e1aa14f0e41ed4811cd67f55ba9a1b19c355a24d2c8ed} of all imports coming to the U.S. now were, in turn, imported into the exporting country to make the product in question—including raw material and manufactured components from the U.S.
• “Buying American” today is near impossible. Virtually all manufactured products are a sort of international all-star team as depicted in the essay “I, pencil.” 

Let’s address those arguments in order.

1. US debt has never been higher. US population has never been higher. That’s why US GDP is at record highs, not semi-free trade.
2. There have never been more Americans out of the work force. The record employment is an artifact of the record population. The employment/population ratio is not anywhere near its record highs and is nearly as low as it was prior to the second wave of women entering the work force.
3. There are currently 94.6 million Americans not in the workforce. The fact that they are not looking for jobs offered at lower average wages than 1973 does not mean that they are entirely uninterested in ever working at any wage.
4. Smoot-Hawley had nothing to do with the Great Depression. First, the annual decline in exports from 1929 to 1933 was less than the decline from 1920 to 1922. Second, the net effect of the change in the balance of trade amounted to less than 0.3 percent of GDP.
5. None of this garblefarbling about the stock market is relevant.
6. The government will be in a much better position to help manufacturers when it has $500 billion in tariff income at its disposal.
7. This is an argument for why less semi-free trade, not more, is needed.
8. Buying American is not “near impossible” and it will get considerably easier and more cost-effective when imported goods are taxed.

Pat Buchanan figured all this out long before I did. And he’s been remarkably consistent all along in his correct argument that free trade is economically destructive for the United States. He was right about this in 1992 and he is right about this today.

The hysteria that greeted Trump’s idea of a 25 percent tariff on steel and 10 percent tariff on aluminum suggest that restoring this nation’s economic independence is going to be a rocky road.

In 2017, the U.S. ran a trade deficit in goods of almost $800 billion, $375 billion of that with China, a trade surplus that easily covered Xi Jinping’s entire defense budget.

If we are to turn our $800 billion trade deficit in goods into an $800 billion surplus, and stop the looting of America’s industrial base and the gutting of our cities and towns, sacrifices will have to be made.

But if we are not up to it, we will lose our independence, as the countries of the EU have lost theirs.

Specifically, we need to shift taxes off goods produced in the USA, and impose taxes on goods imported into the USA.

As we import nearly $2.5 trillion in goods, a tariff on imported goods, rising gradually to 20 percent, would initially produce $500 billion in revenue.

All that tariff revenue could be used to eliminate and replace all taxes on production inside the USA.

As the price of foreign goods rose, U.S. products would replace foreign-made products. There’s nothing in the world that we cannot produce here. And if it can be made in America, it should be made in America.

Consider. Assume a Lexus cost $50,000 in the U.S., and a 20 percent tariff were imposed, raising the price to $60,000.

What would the Japanese producers of Lexus do?

They could accept the loss in sales in the world’s greatest market, the USA. They could cut their prices to hold their U.S. market share. Or they could shift production to the United States, building their cars here and keeping their market.

I have already proved that free trade is totally incompatible with nationalism, national sovereignty, and the future survival of the nation due to the labor mobility required by it. Now I will prove that even complete autarky would, in the present circumstances, be of material benefit to the United States economy.

First, what passes for the macroeconomic facts, courtesy of the BEA:

• Q4 2017 GDP was $19,386.2 billion.
• Net exports were $2,420.7 billion
• Net imports were $3,020.8 billion

Now, let us accept the free trade advocates’ standard argumentum ad absurdum and suppose that Donald Trump actually does shut down all international trade going forward. Let us suppose that China, Japan, and the EU all retaliate with 100-percent tariffs and refuse to sell into the world’s most profitable consumer market. What does this mean in statistical terms?

It means the US economy loses $2.4 trillion in exports and gains $3.0 trillion in imports. Remember, GDP is calculated by the following formula: C+I+G+(x-m). So, this much-feared trade war, at its theoretical worst, would result in the instantaneous growth of the US economy from $19,386.2 billion to $19,986.3 billion GDP.

That is three percent annual growth, which is faster economic growth than the USA has enjoyed since the 1990s. In other words, the very worst scenario that the free traders can envision actually guarantees a bigger and better economy growing faster than the USA has seen for more than 20 years. And given the fact that US manufacturing prices are more expensive, the actual GDP growth will probably be in excess of that.

And just to be fair to the less intelligent, a word of warning to free traders before they resort to the obvious and anticipated rebuttals. Be very, very careful on what basis you attempt to pull your “yeah, but” arguments out of a hat. Remember, any assumption you negate here will also be negated in your own pro-free trade arguments. To put it plainly, I am hoisting you on your own macroeconomic petards.

In answer to the specific question, the Trump tariffs are a very small, but positive first step towards Americans regaining their economic independence from their globalist financial rapists.